Market Opportunities for the Value Investor

Recently, a couple of people asked my opinion on the market and where I think the opportunities are so I decided to dedicate a post to it.

I wanted to start off by thanking the Cisco investor's who have stuck with us through the last 6 quarters. As most of you know given our customer base, product lines, market cap, global positioning, and pulse in the market, Cisco has a tendency to read and feel market transitions 2-4 quarters before our competitors. As John said, I'm not sure if it's a blessing or burden but it does mean that the market uses our performance as a leading indicator for sector and industry health. We saw the financial crisis in 2001 before our competitors, again in 2008, and finally most recently a couple of quarters ago.

We posted earnings yesterday of $11.2B on $0.40EPS, exceeding analyst expectations for the first time in 6 quarters and provided steady guidance for Q1 in the 1-4% range. The market reacted and Cisco shares are up 17%, leading the way in a much needed market rally today:
http://www.marketwatch.com/story/street-sees-feistier-cisco-shares-jump-2011-08-11


You can also find a transcript to our earnings call below:
http://seekingalpha.com/article/286531-cisco-systems-ceo-discusses-q4-2011-results-earnings-call-transcript?part=qanda

The recent downgrade from the S&P, uncertainty in the job markets, stalemate in government, instability in the housing markets, and numerous other factors have contracted investors' expectations and misaligned them with fortune 500 balance sheet strong companies.

To put it simply: The market has created opportunities to buy strong companies cheap.

I'm a value investor, mostly because I don't have the time to put in the required diligence, nor do I want to pay taxes and broker fees on short term positions. Therefore, where I see opportunity I believe in putting your money long behind companies with:
• Strong balance sheets
• Good management teams
• Track records of success and ability to evolve
• Products and R&D activity that migrate along the development curve in anticipation of future consumption trends
• Externality plays off the above as suppliers, channel partners, distributors, etc... where the common money is less diluted
• Holistic economic hedges/ futures in commodities

Furthermore, I like to put my money behind what I know and that's Tech. Here are a few interesting plays from my perspective in the market right now:

Intel - they just dedicated $300M into an R&D incubator dedicated to developing ultra books designed to host their new line of stacked mobile processors. I think they're undervalued given their market share in the semiconductor industry and have an amazing management team. I'd also look for big announcements from them in mobile security.

Look for strength in markets that reduce travel costs, especially in the public sector (e.g.): Collaboration and Video.

Other than Cisco, look at:
Citrix- a little pricey at 5x revenue and 24 P/E but has a strong balance sheet and is a major player in this space. I'd expect them to increase orders in the public sector but would wait to get in below $55/ Share.

Mobility/ SP Infrastructure:
We see service providers ramping orders in mobility infrastructure to keep up with mobile data consumption growth and the evolution of applications. I'd expect more routing / switching / mobile security orders from service providers going into fy12. Keep your eyes out for movement around service providers / channel partners/ disty's in this sector.


B of A: The situation has been pretty exciting at B of A. The smart money is getting in and at $7 / share and I can't blame them. Look for them to dip further before you get in but keep it on your radar. I don't like playing financials but this is an interesting case.

Anyway, this is just my two cents. I don’t claim to be a trader or expert by any means.
As usual I’d love to hear your ideas.

The SVTB

U.S. Corporate Repatriation Tax

Rising oil prices & unemployment rates, faltering manufacturing production, and spikes in inflation ($ devaluation) weren't defended with hopes of a turnaround in the U.S. economy by Fed Chief Ben Bernanke yesterday as he concluded "monetary policy cannot be a panacea." The Fed Chief hopes gas prices will ease, but until employment data improves we "cannot consider the recovery to be truly established."

The Federal Reserve, in other words, is out of time, money and ideas for fixing the economy in the foreseeable future. The Fed is relying on hope. Hope that hiring picks up, the consumer re-emerges, and U.S. economic growth rises above 3 percent by the end of the year

Hope? It's time to take time tested action... the Quantitative Easing program has not worked. I say, bring back the corporate tax repatriation benefits.

U.S. Businesses currently hold approximately $1.7 Trillion dollars over seas and won't bring it back to infuse into the U.S. economy because our corporate statutory tax is among the highest in the world at 35%. Allowing corporate businesses to bring their overseas cash back to the U.S. is a time tested, effective method of infusing capital into the economy.

• It will bolster the marketplace, allowing businesses to deliver shareholder value via share repurchases and dividend issuances.
• Create Jobs, putting an end to corporate hiring freezes
• Fund R&D activity, keeping the US progressive in Science, Engineering, healthcare, etc...
• Spur GDP growth as consumer prices fall, credit decreases, and spending picks up...

The following CNN Money article gives a bipartisan, logical explanation:
http://finance.fortune.cnn.com/2011/04/29/bring-on-the-corporate-tax-holiday/

Stop printing money, devaluing the dollar, and giving capital injections to the banks that brought us to our knees in the first place.

As always, I'd love to hear your feedback and thanks for reading.

The SVTB

"Celebrate the Science Fair" - USA's diminishing global competitive advantage

President Barack Obama said in his State of the Union address that "America should celebrate its science fair winners like Sunday’s Super Bowl champions, or risk losing the nation’s competitive edge".

This was followed by a number of publications such as this one in the NY times emphasizing his point: http://www.nytimes.com/2011/02/05/us/05science.html?_r=1

SCVSEFA is a non profit organization that promotes science fair participation in the Silicon Valley. We create innovation through competition amongst our next generation thought leaders. The students in our Science fair grow as individuals and learn to foster the values that this nation was built on when we were leading the world in math, science, and industry.

This year's SCVSEFA - 2011 Synopsys Science Fair Championship was no different. Don't take our word for it, read one of our letters of reference from the parent of a child who didn't win this year and you'll understand the value organizations like ours bring to society:

http://www.box.net/shared/v9d9ctst7i

Or a letter from Gary Robinson, CEO Synopsys Outreach Foundation:

http://www.box.net/shared/9eqesnv4km

Thank you to all of our sponsors, volunteers, board members, and judges for putting on another successful fair. Here are some photos of this year's fair for your enjoyment:

http://www.flickr.com/photos/53854912@N02/sets/72157626210646849/


“Competition breeds excellence through innovation. Innovation is the engine driving social progress”.

SVTB

SPEAKEASY Mini Blog Series Post 4

Today was the final day of the three day program. Today was focused on application, practice, and assessment of the framework that we’ve developed over the last two days.

We practiced speaking to poems, speeches, and presentations. Furthermore, we were filmed speaking standing up, sitting down, in front of a projector, and sitting at a conference room table.

Emphasis is placed on seeing yourself and the impact you make as a speaker, from the listeners point of view. Once you understand how you appear in their eyes, you can adjust your delivery to achieve the maximum impact.

At the end of the program they give you a DVD which is comprised of all of your recording over the 3 day program. I was astonished when I watched the DVD at how much progress I made in 3 days. I’m already a more confident speaker, know where I’m at, and have the framework to implement into my everyday life to continue to improve as an impactful speaker.

I can truly tell all of you that I will carry the skills I’ve acquired in this program with me for the rest of my career.

This is one of the best development classes that I’ve ever taken. The improvement is night and day. I’d encourage anyone, no matter what skill set or position in an organization you are, to take this course.

I hope that this blog series was an informative read, and I would appreciate any feedback that you have.

Please reach out to me if you have any questions regarding the program.

The SVTB

SPEAKEASY Mini Blog Series - Part 3

Impact, impact, impact. Today was all about concentration, repetition, application, evaluation, and integration.

Yesterday we learned the techniques and tools to use for excellent communication and began practicing. Today, we spent the whole day implementing and practicing those techniques.

We had 3 recorded exercises and speeches throughout the day where we were evaluated by our coaches, our peers, and ourselves.

The video assessments allow you to see your evolution throughout the day and pinpoint your strengths, as well as your areas of development.

Between the video assessments you're given practice exercises that are targeted at giving you the opportunity to work on your development areas. By the end of the day you, you've been through an intensive training program and can effectively implement the techniques that you've been taught with extreme concentration.

I was extremely happy with my end of day assessment and am looking forward tomorrow. My focus area for tomorrow is trusting myself. I need to control the situation, and effectively deliver the message to my peers, regardless of what my speech says.

Stay posted,

The SVTB

SPEAKEASY Mini Blog Series - Part 2

Day 1 was quite the experience. I already feel myself becoming a better communicator. We have a class of 8 people with senior-executive level managers from companies like Wells Fargo, Visa, Juniper, Apple, and more.

“Communication is defined as the transfer of a sentence to the mind of another”.

Today was focused on driving the idea into our heads that communication is about making an impact in the mind of another person. The thought process and training is explained in the analogy of a world class tennis player.

World class tennis players take the same swing regardless of if they’re hitting the ball against the wall, against an opponent, or center stage at Wimbledon. World class communicators therefore have the tools and approach to communicate effectively and make an impact, if they’re talking to 1 person, or 10,000.

The approach is broken down at a high level into two steps, thought composure, and thought delivery. After learning the technique, the rest of the day was spent on multiple video assessments, exercises, and implementation.

Danny Slomoff, our instructor, has over 30 years experience as a communication coach and psychologist, and has therefore been an inspiration in his ability to recognize and give feedback to us around becoming an “excellent communicator”.

I’m looking forward to tomorrow, and am off to go complete the homework assignments for day 2.

Stay posted,
The SVTB

SPEAKEASY Blog Series Part 1

I've been fortunate enough to be sponsored to go to SPEAKEASY, http://www.youtube.com/watch?v=C0Ag40VrbCY, a corporate communication development program in SF for the next 3 days.

My program, Talk So People Listen, is described below: http://www.speakeasyinc.com/talksopeoplelisten.asp

"Three-day program for middle and upper management. Limit: 10 participants. This program is for the individual who understands the importance of communication to driving business results ¬ and who is committed to developing a style that can positively impact those results. In this program, participants get all the information and all the insight they need to develop a communication style that is uniquely their own. And they have the time needed to explore, experiment with, and then own the specific skills that will make them more comfortable and more effective communicators".

I'm going to blog about my SPEAKEASY experience to stress the importance of learning and development in your organization. The development of your most important asset, your people, is an investment which, in a recessed economy, most organizations have chosen not to make.

I believe that organizations should make a point to invest in their people, and develop the high potential candidates of today within their company so that one day, you have created a pipeline for your companies leaders of tomorrow. Leaders who have developed within your business and understand the pulse, culture, and direction your company needs to go in to remain a world class organization.

I’m looking forward to giving this course everything I have to truly grow and develop as a professional. I’m also extremely thankful to Cisco and my management team for making this opportunity possible.

I’ll keep you posted. I’ve got to do my homework for the first day, preparing a 2-3 minute speech about something I’m currently working on.

I’ve included some further information about the program below if you’re interested:
http://www.box.net/shared/71r8cv8z5o

The SVTB